A newcomer, Blue Sky Basic Home Loan stole the show in Your Mortgage magazine's monthly Editor's Choice awards, emerging as having the best value basic variable rate loan in Australia.
The cheap rate of just 7.10% - one of the lowest in our top performing mortgages - enables you to save up to $1,060 over three years compared to the average loan in our database.
While you will have to fork out a total of $900 total fees and a hefty $2,000 in deferred establishment fees, if you pay off your mortgage after the three-year mark, you will still come up ahead in terms of savings.
A potent combination of low interest rates and low fees is what catapulted BankWest Lite into the highest-ranking position in the three-year category. With headline rate as low as 7.4%, you are able to save as much as $1,879 over three years.
However, the biggest plus for this loan is its zero deferred establishment fees. While most lenders are typically charging anywhere between $1,000 and $5,000 deferred establishment fee if you pay off your mortgage within three years, BankWest had simply dropped this charge to further enhance the loan's appeal.
BankWest Lite also carries one of the cheapest fees: only a total of $250, which is a bargain, compared to most loans in our database.
John Rolfe, head of mortgages at BankWest says their BankWest Lite product offers nearly all the 'bells and whistles' of a fully-featured product. Another unique feature of the loan is the application fee refund after three years.
"We offer this as a reward for customer's loyalty as opposed to the majority of products that have a Deferred Establishment Fee (DEF) if you leave within three to five years. If you close off our loan early, there is no DEF - you just don't get the application fee refunded," he explains.
"BankWest Lite has no minimum loan size to qualify for a cheaper rate and it offers all the benefits of accelerated repayment and redraws, and it's free if you do it online."
Rolfe warns that basic variable loans are not created equal so be aware of all the costs involved in taking the loan as well as the penalties that may be imposed if you break or pay off the loan earlier.
"The most important thing is to ensure there is no DEF or other hidden costs. A number of lenders charge DEFs and don't include or list the set up costs (valuations, legals and settlement costs) in their comparison rate as they are classed as '3rd party' costs. BankWest lists and includes all costs," he adds.
Some basic variable providers also do not allow borrowers on these loans to fix portions of their mortgages. Check with your lender though, as some providers including Blue Sky Home Loan allow you to split your loan into fixed and variable portions.
How the loans were compared
The team at Your Mortgage has worked out the 'true cost' of all the basic variable loans in our books by taking into account each and every fee, including upfront, ongoing and deferred establishment fees.
By working out how much a given loan will cost you after a range of time periods - three, five and 10 years - we show you the impact that these fees can have on the total cost of your mortgage. Starting with the principal and interest (P&I), we calculate the cost of P&I over a mortgage life of three, five and 10 years. The result is the true cost of the loan and all applicable fees.
This month, we based or calculation on a loan amount of $250,000 at 89% LVR taken over 30 years.
For more analysis, read this month's edition of Your Mortgage available on sale now.
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